Last week I checked in with our Macy’s call calendar. At the time the stock had gone higher through our strike and was actually net short deltas at that point, a position slightly at odds with our favorable view of the stock. At the time I said this:
Right now the call calendar is short about 4-5 deltas. So not a ton of risk here as far as direction goes. But that’s only if the stock doesn’t go crazy on the upside. Those deltas will get shorter the higher we go, and closer to neutral the closer the stock gets to $65.
Ideally we see a little pullback towards $65 and we can close the April call and roll that short call out to May to create a vertical. Mark to market the trade is worth a few cents more than we paid for it. The longer it hangs out here the better the roll will be. And at $65 would be the ideal point to roll.
So today we have the stock back near $65 and have a decision to make. In a way we have the stock right where we want it, especially with a 3 day weekend coming up. But the decay collected each day in only 1-2 cents. So it’s not like we’re in some sort of theta holiday bonanza. In our view, the bigger risk here is the stock making a run higher and us being stuck in a short delta position. Therefore we’ll take this opportunity to roll the position to a more bullish one, entirely within May. The trade is up ever so slightly which basically saves us about 10c on the roll:
ACTION – Bought to close the M ($65.00) April 65 calls for 1.10
– Sold to open the May 70/75 2×1 call spreads at .90 (sold 2 May 70 calls at .50 for $1 total, and bought 1 May 75 call for .10)
New Position – Long the M ($65.00) May 65/70/75 call butterfly for 1.15 (currently costs 1.25)
Rationale – The calendar essentially “made” 10 cents (if we closed it right here) which gives us a slightly better entry on the May butterfly. Sticking around with the stock at $65 would make this roll even better but we’re worried about the position getting away from us if Macy’s goes higher, as it wasn’t our intention to be short deltas.